Questions tagged [economics]

About Bitcoin as it might be discussed in economics class, e.g. supply, demand and price in theory.

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170
votes
5answers
227k views

What are “bitcoin days destroyed”?

The concept of bitcoin days destroyed has been proposed as a measure of bitcoin volume. However, I don't think the bitcoin wiki really explains the idea very well. What is the purpose or advantage of ...
92
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9answers
103k views

Why was 21 million picked as the number of bitcoins to be created?

Why did Satoshi pick 21 million as the number of bitcoins to be created? What is the significance of that number?
91
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15answers
21k views

Does hoarding really hurt Bitcoin?

Some people believe that hoarding hurts the Bitcoin economy. But are they really right? As long as corresponding goods vendors and services will be here to stay and reinforce people's faith in ...
65
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9answers
83k views

Where do bitcoins come from and what gives them their value?

Where do bitcoins come from? From the WeUseCoins.com video it appears they are just being produced by "miners" and sold to people. So who backs Bitcoin or gives it its value?
63
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11answers
10k views

Will Bitcoin suffer from a mining Tragedy of the Commons when mining fees drop to zero?

One issue that I haven't seen clearly addressed is the possible Tragedy of the Commons in Bitcoin's future (see this answer). 40 years into the future, the only significant direct benefit for honest ...
54
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4answers
31k views

What keeps the average block time at 10 minutes?

I've been told "the network" sets the difficulty level such that there will be one new block mined every ten minutes. I imagine the rich would instead prefer to keep difficulty as high as possible to ...
24
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6answers
3k views

Can a bitcoin be destroyed?

Its the hypothetical future and BTC2 is being designed. Everyone loves BTC2 and no-one wants the old BTC1 any more. People who have BTC1 would be annoyed that their assets are suddently worth a lot ...
16
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2answers
1k views

Will the amount of electricity used for mining be huge if Bitcoin is widely adopted?

A quick and very rough estimation: If the USD/BTC exchange rate grows to $1000/BTC (not that far-fetched if Bitcoin is actually widely adopted) bitcoins for a value of $300000 would be produced every ...
15
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5answers
1k views

How would interest and fractional reserve banking work in a limited money supply?

Suppose Bitcoin lenders (banks, creditors, investors) issue loans with interest. As the total supply of bitcoins approaches the 21M ceiling, the total amount owed in outstanding interest will exceed ...
14
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1answer
2k views

Why is MtGox trying to trademark “Bitcoin”?

Someone on the #mtgox IRC channel pointed me to this. It seems to be an application by Tibanne Co. Ltd. for the Trademark name BITCOIN. I asked MagicalTux on #mtgox about it, but got no answer. Why ...
13
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8answers
2k views

Could bitcoin be destroyed if an entity cornered the market?

I know the US Government is opposed to competing currencies. It seems that it would be a rather simple solution for them to destroy Bitcoin before it grows too much by merely buying all the currency, ...
13
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6answers
8k views

Why did Bitcoin first start to gain economic value?

I am really having difficulty answering this: Why does a bitcoin have an economic value, such that there are people willing to trade US$ (or any other traditional currency) for these virtual ...
13
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4answers
9k views

What happens once the mining reward gets cut in half?

Sometime around the end of 2012 the mining reward is expected to be cut in half from 50BTC/block to 25BTC/block. What effect will this have? Doesn't this mean that it will be less economic to run a ...
13
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3answers
2k views

Is it possible to estimate the Gini coefficient for Bitcoins and if the trend is increasing or decreasing?

The Gini coefficient is a measure of the inequality of something's distribution, where a value of 0 represents total equality and a value of 1 maximal inequality. Is it possible to perform this type ...
12
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4answers
2k views

Does speculation hurt bitcoin?

Related Question: Does hoarding really hurt Bitcoin Does speculation hurt bitcoin? I often hear people complain that speculation is destroying Bitcoin, or that Bitcoin will fail because of ...
11
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4answers
3k views

Why destroy bitcoins?

I keep seeing references to destroying bitcoins by sending them to addresses that nobody can own (e.g., addresses derived from impossible public keys). What would be the reason for doing this? It's ...
11
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2answers
1k views

Is Bitcoin Days Destroyed a measure of hoarding?

Is Bitcoin Days Destroyed a measure of hoarding? Also, is it possible to derive velocity of money (i.e. bitcoin) from Bitcoin Days Destroyed?
10
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8answers
1k views

What are the obstacles to pegging the value of bitcoin to an established stable currency?

Many people will not touch bitcoin due to it's historically extreme volatility. Many new currencies have pegged their value against an established currency until such time as it is sufficiently ...
10
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4answers
2k views

Where can I find well-written criticism about Bitcoin?

I couldn't find an article about criticism in the wiki. Is there some other place that contains well-constructed criticism for Bitcoin?
10
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3answers
798 views

What economics/finance methods and tools can be used to analyze and predict the Bitcoin market?

Bitcoin differs from standard markets in many ways. Some standard market analysis tools are inapplicable due to unique features of Bitcoin. Hence the question What methods/tools can used to analyze ...
10
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2answers
3k views

Historical transaction/trade ratio. Available? Useful?

Blockchain.info lists both "Trade Volume" and "Estimated Transaction Volume" in both BTC and USD. It occurred to me that the ratio of one to the other might be a useful metric in determining how much ...
9
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7answers
1k views

What is a simple explanation for how the number of bitcoins in circulation is determined?

Often times when I explain to someone that there is a limited supply of bitcoins available that need to be divided across all the people who want to have bitcoins, the people who are computer ...
8
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6answers
2k views

Traditional VC investment vs. bitcoin IPO

There are few Bitcoin "stock exchanges" trading mainly BTC mining company pass-through shares, like https://btct.co/ https://bitfunder.com/ We are planning to get investment for our Bitcoin-...
8
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2answers
479 views

Is there a reliable way to measure bitcoin wealth distribution?

Given the difficult of detecting lost coins, or telling between hoarded and lost coins, it seems impossible to actually report on the real wealth distribution of the bitcoin currency.
8
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2answers
2k views

Is Bitcoin's Economic Majority those who already own coins or those who will buy or keep coins?

The Economic Majority theory says that the power to control the Bitcoin protocol is held by those who [own] bitcoins. But the article then goes on to read: The ability for a protocol change to be ...
7
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6answers
924 views

Why was Bitcoin designed with a decreasing production rate?

I have no doubt that the person who designed Bitcoin was many times smarter than me but with the benefit of hindsight was the decreasing number of bitcoins a good design decision given the 'hoarding' ...
7
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5answers
1k views

Should fractional reserve banking be prohibited through the bitcoin protocol or otherwise, and how could such a change be implemented?

There's a massive macroeconomic debate between Keynesians, who want central banks to control the money supply, and Austrians who want no central banks doing any such thing--or at least competing ...
7
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4answers
2k views

Is Bitcoin antifragile?

A friend presented me the concept of antifragile and asked me if Bitcoin is antifragile. I couldn't answer properly, so I'm asking the experts: Can bitcoin be categorized as antifragile?
7
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4answers
2k views

Why did Bitcoin transaction volume heavily increase in November and December of 2011?

Looking at this chart: http://blockchain.info/charts/estimated-transaction-volume It's clear that the amount of bitcoins moved between November 14th and December 12th of 2011 was much larger than any ...
7
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5answers
976 views

How do economists view Bitcoin?

Have there been any articles or presentations about Bitcoins in any influential or respected economic websites or perhaps interviews with notable economists?
7
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2answers
339 views

How can I measure the “health” of Bitcoin?

What are the metrics that matter when evaluating the overall "health" of Bitcoin? What are the thresholds? Specifically Economic (e.g. velocity, days destroyed, market volume & beta) Technical ...
6
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6answers
5k views

How much energy will the Bitcoin network eventually consume? [duplicate]

A recent Bloomberg article stated that the Bitcoin network currently consumes about half as much energy as the Large Hadron Collider or enough to power 31,000 US homes. Even if the article is way off ...
6
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2answers
3k views

Why are fiat Currencies inflationary and Bitcoin deflationary?

Why are all fiat currencies inflationary, and lose value with time? Could governments make them deflationary? What are the advantages of inflationary currency compared with deflationary currency? ...
6
votes
2answers
461 views

How do we know that the algorithm of Bitcoin does not embed bugs since inception?

I'm new to Bitcoin. My understanding as a trained economist (and not a programmer or IT expert) is that the key selling point of Bitcoin is the assignment of monetary policy prerogatives to an ...
6
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2answers
828 views

Inequality in a Bitcoin World

So let's assume at some point in the future bitcoin has replaced fiat currencies and we thus have a fixed money supply. Let's also assume we have increasing production and therefore deflation. It ...
6
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9answers
2k views

What happens when bitcoin loans start to appear?

What happens when bitcoins loans start to appear? Loans have interest rates that "create additional value". Given the limited amount of bitcoins, couldn't we realistically run out of them? ...
6
votes
3answers
1k views

Pricing bitcoins

Bitcoin functions as a a quasi-commodity currency and I believe it can be priced according to particular factors, variables, instead of simply by the supply and demand in the exchange order book. The ...
6
votes
1answer
638 views

What would be an estimate of the value gained if the whole world started using Bitcoins?

I remember that before the Euro was first introduced, I read estimates on how much economical benefit every person would get (GDP per capita) once the Euro was fully implemented. Estimates like these ...
5
votes
1answer
698 views

What are some of the proposed ideas to why the Bitcoin dropped to sub $400 in the end of summer 2014?

Having seen that BTC was around $600 early summer of 2014 (May-July). It is currently almost 50% of that value. I read many varying reports of the cause of such a big drop. Can someone give a list of ...
5
votes
5answers
653 views

Will merge mining patch make Bitcoin network mining power available to anyone?

I think Namecoin has a good value, but while I think Vladimir overestimates the inflation effect of merged mining, I still mostly agree with his post, which is negative towards uncontrolled merged ...
5
votes
3answers
7k views

Why is mining difficulty increasing?

I have heard in many places that mining difficulty is increasing, meaning that the hardware used to mine new coins will need to be more and more powerful as time goes on. What is pushing mining ...
5
votes
3answers
714 views

Are there statistics on how Bitcoin holdings are spread among addresses?

I'm aware an address can belong to multiple people, and one person can have multiple addresses. Still, I'd like to assume the number of accounts per person is O(1) on average. Are there statistics on ...
5
votes
3answers
507 views

Are loans with enforced repayment possible on the blockchain?

Are loans with interest possible in Bitcoin, such that repayment is enforceably encoded with Bitcoin Script on the blockchain from the establishment of the lending contract?
5
votes
1answer
156 views

Inheritance and Bitcoins

A basic economic property of any currency is the ability to hold its value in the long term. While Bitcoin's ability to hold its value is evident, since there is no central authority to control the ...
5
votes
3answers
291 views

What is the most reliable way to calculate the amount of fiat value that has been transferred into the bitcoin economy?

I would like to know what are the most sophisticated ways to estimate the amount of bitcoin that has been bought globally with various fiat currencies. Exchange data is only one source, and may well ...
5
votes
2answers
161 views

Is price volatility necessarily a bad thing?

Discussions of BitCoin as the potential basis for a future global monetary system often point to the currency's price volatility as a shortcoming. Fiat currencies, by comparison, are (mostly) a lot ...
5
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0answers
3k views

What gives bitcoins value? What are bitcoins backed by? [duplicate]

Possible Duplicate: Where do bitcoins come from and what give them its value? Often times people ask (shortly after muttering something beanie babies), What gives bitcoins value? What are they ...
4
votes
5answers
601 views

Does bitcoin improve on “hard” currencies in any way?

Question is in the title. Anyone who's toyed sufficiently long enough on the foreign exchange understands that currencies are largely driven by sentiment or manipulated on the odd occasion. Plus, ...
4
votes
3answers
4k views

How does Bitcoin “inventor” makes money?

Other than by having a non existent digital code become currency and riding on seeing the previously no-value cash become more valuable, how does the Inventors of Bitcoin profit from developing ...
4
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3answers
288 views

Is mining an antieconomical process?

I will (probably) oversimply things, but I see it like that: Gold linked currencies: someone stores in vaults the value of the circulating money (1) and that "real wealth" is safe to be eventually ...